Mr. Davey:
My hon. Friend is rightnothing will happen. We have heard that the former Ministry of Agriculture, Fisheries and Food has been penalised. It has been renamed, and is now the Department for Environment, Food and Rural Affairs. If that is the sort of penalty that the Government have in mind, the focus of the PSAs will be lost.

Mr. David Laws (Yeovil):
Is my hon. Friend aware that the Chancellor, when asked by the Treasury

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Committee about that point, said that the only sanctions would be those imposed by the Prime Minister or the electorate? Does he think that that will be good enough?

Mr. Davey:
On current performance, it clearly will not be good enough. My hon. Friend is right to make the point. The Government's feelings about the purpose of PSAs seems to have changed. When they announced their PSAs in 2000, a press release issued on 3 November of that year stated:

"action will be taken where there is a risk that a Department's performance is off track."

Is that still so? What has changed? Given that so many targets in the 2000 spending review have been missed, will the Chief Secretary say what actions have been taken in the past two years? Why have they failed?

James Purnell:
The hon. Gentleman's relatively thoughtful speech should embarrass the right hon. and learned Member for Folkestone and Hythe (Mr. Howard). However, what is his view about targets and objectives? Is he completely opposed to them, or does he agree that they are worth setting? Does he agree that general targets that cannot be measured have to be set for some items, whereas clear measurable targets can be set for others? Is not it slightly foolish to pretend that everything can be measured specifically, as counterproductive targets could be set as a result?

Mr. Davey:
I agree that targets are justified in some circumstances. We have argued that output and outcome targets are necessary in many areas, but the hon. Gentleman makes an interesting point about how targets should be used in different circumstances. The Government's performance should not be determined according to measurable targets, but by the degree to which they look at intangibles that cannot be measured.

My hon. Friend the Member for Yeovil and I went to New Zealand to find out how targets were used there. We were told about the dangers that arise when targets are too specific. The police in Wellington had a target for the number of breathalyser tests undertaken. Towards the end of the year, the force realised that it had not performed anywhere near the number of tests that it had contracted to do. As a result, Wellington was brought to a standstill for two days as breath tests were taken by every driver.

Government policy must be sensible and sensitive, and not driven only by targets. That is our concern today, especially as many of the targets are centrally imposed on bodies that are asked to meet them having had no part in deciding what they should be.

David Taylor (North-West Leicestershire):
Is not the hon. Gentleman trying to have it both ways? He is making funperhaps justifiablyof the Treasury's target-setting process. However, he seems to classify quantitative targets as irrelevant, unachievable or capable of being fiddled, yet, if asked, he would no doubt describe qualitative targets as vague, waffly and imprecise.

Mr. Davey:
The hon. Gentleman is putting words in my mouth. I did not say that there was no case for qualitative targets, or that there was a case only for

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quantitative ones. Clearly, Government objectives must be scrutinised, and we must try to find a way to ensure that we can "focus minds" on that, to use the Chief Secretary's phrase. However, in this speech I am looking at the Government's published targets and attempting to find out what the Government's intentions are. I am also trying to discover what happens when Departments do not meet their targets.

We are told that the targets are important and crucial to public service reform, but the Government have so far failed to make that case in this debate. The Chancellor was asked about the Treasury's performance in relation to targets, yet he and the Chief Secretary have failed to explain why the key target on efficiency had been missed. The Chancellor set himself a target of delivering efficiency gains of 2.5 per cent. a year. He agreed that target with himself, but he missed it, and has now dropped it.

The Treasury has other targets, such as that for underlying growth. Originally set in the 1998 spending review, that target, we have been told, has been achieved. The Chancellor forecast trend growth at 2.5 per cent. a year, but this yearhey presto!the estimate is of 2.75 per cent. The Treasury seems to have hit that target, but a closer examination reveals that that has nothing to do with higher productivity. The Treasury has hit the target only because of higher than expected labour force growth, fed by higher than expected immigration.

At least, that is what the relevant Treasury document states, but a deeper inspection shows that the Chancellor has pulled off a nice little trick. In the past, the Treasury used to take the principal forecast of the Government Actuary to determine population growth and labour force growth. This year, for the first time ever, the Treasury has decided to override the Government Actuary. Unilaterally, the Chancellor has decided to forecast labour force growth at a higher rate than the Government Actuary. Miraculously, Britain's trend growth appears to have risen. The Treasury has hit its PSA target because it has fiddled the figures.

We have tried to investigate the matter. We are not obsessed with PSAs, but the matter is critical to the Government's forecast of public finances. By increasing by 0.25 per cent. his trend forecast for growth, the Chancellor has given himself a fiscal windfall of an extra £4 billion a year.

In the interests of fiscal prudence, therefore, we have been asking some questions about the change in the forecast. It turns out that the Treasury has done little work to justify it. It published a report at the time of the Budget entitled "Trend Growth: Recent Developments and Prospects", but a close reading of that document reveals only how little work the Treasury did to justify what was a very significant change.

The formal justification for the change was that the Government Actuary department had underestimated the extent of net immigration, and that increased net immigration has raised the size of the labour force. However, the Treasury has offered no analysis of the longer-term determinants of immigration, and no justification has been given for assuming that a recent

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upturn of immigration will be sustained in the longer term. After all, the Home Office has a PSA that requires it to enforce

"the immigration laws more effectively."

Even the major driving forces behind recent immigration flows will be cut, according to other PSAs. The Foreign Office has a ludicrous PSA, requiring it to

"reduce tension in South Asia, the middle East, Balkans and elsewhere."

That is not to be achieved through the employment of masseurs, butpresumablythrough diplomacy. Yet, if the Foreign Office succeeds in reducing tension in those parts of the world, future immigration flows will presumably fall. Perhaps the Treasury has little faith that the Home Office will reduce immigration, or that the Foreign Office will reduce the tensions that create it. If the Treasury has a target to increase immigration, there is no PSA for that.

Our analysis shows that the targets are nonsense. The key weakness of the PSA system is that Departments are, in effect, judge and jury when it comes to their performance. They decide the targets, and measure performance. The targets are not agreed with Parliament, and there is no discussion with Select Committees about what they should be. They are not agreed with an external body such as the National Audit Office. Of course, Select Committees and the NAO may look at performance against targets, but most PSAs rely on data provided byguess whothe Government.

After the Sharman report, we were promised that PSAs would be externally validated. The Chief Secretary's predecessor told Parliament on 13 March that he accepted the external validation of PSAs. He said:

"we are taking measures that add to the substantial external validation that is already carried out by the Office for National Statistics and the Audit Commission, the ability of the Comptroller and Auditor General to oversee the data systems as a whole.[Official Report, 13 March 2002; Vol. 381, c. 893.]

That is a very welcome development, but what does it mean in practice? According to the Office for National Statistics, PSA data come from various sources: 43 per cent. of it comes from departmental surveys or statistics, 18 per cent. from agency data, 12 per cent. from local authorities and the NHS, while 13 per cent. comes from other organisations. Only 14 per cent. comes from national statistics. So Ministers retain control, directly or indirectly, of 86 per cent. of the data going into the PSAs. The National Audit Office will have a tough time giving any meaningful external validation to these statistics.

I make just one challenge to Treasury Ministers. If they are so confident that they have their own PSAs right, and, specifically, if they truly believe that underlying growth has increased from 2.5 per cent. to 2.75 per cent., let the Treasury ask either the NAO or the Statistics Commission to review the revised estimate for underlying growth. While they are at it, let them review the analysis that the Treasury has presumably done on long-term immigration determinants. The NAO did neither when it audited the Budget assumptions before the Budget. Will the Minister ask the NAO or the Statistics Commission to do that as one of their first tasks in auditing PSA data? I hope that she will give me that commitment, but I very much doubt it.

My worries in this area are profound and they have got worse as a result of the spending review statement. One of the key elements of that statement, supposedly to

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ensure that extra cash is well spent, was the development of so-called independent auditing and inspection. New audit arrangements are to be established, according to page 12 of the White Paper, to hold Departments and agencies accountable for performance against the PSA targets. In other words, five new central quangos are to be set upa commission for health care audit and inspection, a single independent inspectorate for social care services, a single housing inspectorate, a new police standards unit and a modernised inspection regime for the criminal justice system.

These new auditing inspection regimes raise profound questions for the House. First, why do we need these new bodies at all? What was wrong with the Audit Commission? What was wrong with the National Audit Office? Why could not these experienced and well respected bodies have been enhanced and expanded? Both have value for money remits and both have experience auditing the services that the new quangos will audit.